Another missed opportunity?

I could be wrong, but it's beginning to look like another year is going to
go by before somebody licenses Internet gambling (beyond horse racing) in
the USA.

Where's the Success?

On the national level, Congressman Frank's bill to legalize and license
Internet gambling throughout the country under the Department of the
Treasury did make it out of committee this time. Unfortunately, that's
where it's liable to stay. Although Democrats are traditionally much easier
on gambling than Republicans are, lots of Democrats in the House are going
to have a tough fight hanging onto their seats this election. The taint of
being "pro-gambling" is a problem they just don't need. In any case, there
is no companion bill in the Senate, so it would take a series of fast
shuffles to even mount a worthwhile effort this year.

Legalization on the state level would seem to be a much more promising
prospect, not least because the UIGEA, just as it stands, already
authorizes the various state governments to okay Internet gambling within
their respective borders. All they have to do is make sure that it's
properly supervised, and restricted to their own residents. And, one would
think, the current financial troubles ( almost every state is predicting a
substantial budget deficit this year) present an excellent opportunity to
sell I gaming as a new source of revenue, a welcome alternative to raising
taxes or cutting services.

Alas, that too is mostly burned out. Florida and Iowa introduced measures
for licensed Internet gaming, but couldn't get the votes. California and
New Jersey still have measures and play that would permit online gambling,
but there have been delays, and it's already September.

Soon even the full-time legislatures will have to adjourn for the election. If
somebody's got a move to make for 2010, it's time to make it.

The Reasons Why

What is preventing Internet gambling from being widely adopted at the state
level- indeed, why doesn't it sweep from coast-to-coast given the present
favorable environment?

The disconnect seems to arise from differing expectations among stakeholders,
and a woeful lack of accurate knowledge about just what Internet gambling is
and does.

For once it is the vested gambling interests, rather than the diehard
fundamentalist moral types, who are the principal problem . As soon as the
idea of Internet gambling is introduced, the existing gaming industries in
a given jurisdiction immediately assume it is a threat to their existing
markets. Either it will steal customers from them, or, even worse, give the
competition - racetracks, state lottery, licensed establishments, or gaming
tribes- some kind of unfair advantage.

But the world will not stand still, and businesses that rely on outdated
technologies and business models, gambling included, are planning to fail.
The horse racing industry is a dreadful example of what happens when you
assume that your advantages will last forever. In the 1960s, a horse track
was about the only place where anyone could bet legally. But things didn't
stay that way. State lotteries were reintroduced, Indian tribes got the
right to build casinos, and states started expanding their own gambling
programs. By 1990, there were even gambling riverboats in staid,
conservative Iowa. The horse industry failed to reach out to two
generations of customers, and is now struggling as the old ones leave the
scene. Indeed, digital simulcast betting- online gambling, in other words,
only on a private line- is one of the few things that is keeping the
industry alive today. Which makes the opposition to innovations such as
betting exchanges and proposition bets all the more puzzling. Horse racing,
to survive, needs to make a deal with the future. Any deal, while it's
still there to get.

So even for the land based operations which are currently successful the
handwriting is on the wall. They need to attract and keep new players. And
that means accessing the audience for new media, Tweets and Yelps and
Facebooks, i-Phones and Droids and all the rest. That's where they are,
that's where they interact. That's where the money is tomorrow. Internet
and interactive gaming is not a threat to the current clientele, especially
the older ones. But it's the only path to the new one. And time is not
standing still. Congressman Frank's nationwide effort is slowly but
steadily building support, and if the state-level vested interests dally
until it finally breaks through, they will likely find themselves swept
away as big name, Vegas-and AC operations, leveraging their sheer size
and deep pockets, roll in like a flood.

The state legislators, with several statesmanlike exceptions, seem to be in
a cocoon of their own. The assumption is, that if they don't legalize
something, it isn't legal and therefore can't be done.( So there!) But
this ignores the fact that the offshore gambling industry has been
accessing the American market at will for 15 years, in spite of everything
the powers that be could throw at it. In fact it still is- a survey of some
of the more... adventurous sites, let us say, revealed that UIGEA has had
no effect on the money getting through. And a national scheme of licensing
will leave state legislatures playing second fiddle at best. All Frank's
bill will do is give them the option to opt out- of ALL expansion of I-
gaming, forever- and take a cut of tax revenue they could have had
exclusively. If state lawmakers think that Internet gambling will stay
comfortably in limbo until they are graciously pleased to consider it,
there's a large surprise package in the mail, with their name on it.

Another gang that could have been doing far more to help themselves are the
European and offshore Internet gaming operators. If and when a given US
state expands its Internet gambling, it will be under pressure to get into
action as soon as possible. Experienced operators will be indispensable.
While it's true that the USA has a lot of Internet and techno savvy, very
few Americans have actually operated an Internet gambling business, made it
work and made it pay, day-to-day. Of course, state politicians will insist
on a large degree of local participation- isn't that what joint ventures
and strategic alliances are for? But all too many eligible partners from
the operating side have missed the key difference between the systems
they're used to and the proposed American systems.

Namely, the American system isn't built yet. This is as much of a
pioneering effort as a business opportunity.( But it will be a very
lucrative opportunity . To give just one example, the Internet poker market
for the state of California alone is estimated at $1 billion a year.) The
respective primary contractors for each state's Internet gambling network
will be called on to help design and install it as well as run it. And the
operator of the first successful system is going to have a rock solid
marketing advantage. Because once the first state takes the plunge, many
others will follow in quick succession. So the question will be "who do we
go to, to get our own system up and running quickly?" And of course the
answer will be "who else? - the guy who just did one!" It will be very hard
for competitors to overtake that lead.

But there have been very few who have reached out to the proper parties-
the legislators and regulators, and the advocacy groups who are
coordinating the efforts. To be sure, here and there an individual company
approached an individual gaming tribe or card room, or vice versa. But
until the enabling Internet gambling legislation is passed, any given
land-based operator has nothing in particular to offer. To borrow one of
Ronald Reagan's favorite sayings, "It ain't legal ?till the fat lady
sings." And for those with particular concerns and needs, it's best to
talk to the right singers.

A chance to re-boot the program?

Just now it's still too soon to call. California or New Jersey, or perhaps
both of them could very well be the breakthrough state(s) for expanded
Internet gambling in America. On the other hand, we could finish up the
year hanging fire yet again.

If that should happen, it would be a signal for everyone involved in the
effort to take a step back and focus on what hasn't been happening. The
right information is not getting to the right people, and as a result they
cannot see their way forward to the correct, lucrative-all-round decisions.

The legislators need to be educated on the real-life possibilities of
Internet gambling- what it can and can't do for them, what sort of support
and authorizations and legal protections it would need to flourish. They
don't know, and don't know that they don't, and so the operators and
advocates need to reach out directly to them.

The existing state-licensed gambling interests, the tribes and card room,
tracks and lotteries and casinos, need to educate themselves about what
accelerating technology is doing to their customer base. Namely opening up
a new one if they will take the trouble to reach out to it. They need to
hitch their wagons to the future, rather than hang around the statehouse
trying to pass laws to break its legs.

The foreign operators and service providers need to understand that the
American venture cannot be an exact copy of what they've done before. The
system, for all practical purposes, remains to be built, and local tastes
are going to count heavily. That is an unusual challenge, and also an
unusual opportunity for the right companies to put their mark on the
development of I-gaming in the USA. But be warned: no one will be allowed
to influence the solution, who is not part of that solution.

And lastly there is a place in the proceedings for the average American who
just wants to play poker (or something) online. Time for him to remember that
he is boss of the politicians, and not the other way round. Time for players to
remember that they are citizens, not just sinners. Time to tell the powers that
be, loud and clear, to attend to their real jobs, and leave people's leisure
pursuits alone.